Unethical Bonus Annuity Presentation

[insuranceexec]

First of all, there is nothing at all wrong with taking someone out of a poorly designed annuity and using the bonus of the new annuity to pay the penalty on the old annuity. It is done all the time. Any decent insurance company is going to put you through the suitability wringer on this to make sure you are doing the right thing.

You have to be careful that you are talking about a NET plus since on the transfer the penalty is taken out before the new bonus is applied. Also, you had better have a significantly better product and a solid reason for making the move.

On the 7.2% issue, that amount is only guaranteed as a minimum amount of growth on the INCOME SIDE of the ledger, or "income bucket" as we prefer to call it. What I tell clients who can't believe someone can pay them 7.2% is:

"Look at it from the insurance company side. They aren't really giving you anything until you start taking income. At that point they don't guarantee a minimum. In the meanwhile, they have your money and are giving up nothing but some entries on a ledger sheet that is carried over to your annual statement."

"The longer you delay taking income, the bigger your account gets and the larger the percentage of income you can take. BUT, you are now older and the actuaries know how much guaranteed lifetime income you are likely going to see."

The whole thing is brilliant from the insurance company perspective. It can also be a great deal for the customer who wants guarantees as to how much income they can get at any particular stage of their life.

Very Well Said. Again; and I know I am preaching to the choir. There is no perfect annuity. You have to find the good you like and the bad you can live with. Feel free to steal, use, this line as I use it with every annuity presentation. There is nothing that I can add to your post there Charpress........Keep up the good work.

 

[bill3173]

The bonus annuity is designed to make it easier for the agent to replace other carrier's products.

It's odd to me that that didn't show up anywhere in these posts.

 

[Charpress]

The bonus was originally designed to make up for early withdrawal penalties on CDs. "Yes, your annuity looks good, but I'll just wait 6 months to move my money since I have an early withdrawal penalty."

They rapidly increased as insurance companies saw the greed component of sales kick in when people thought they were getting something for nothing.

Bonuses are actually nothing more than an advance interest payment and some companies actually call them that.

With most companies, you don't actually get a bonus at all unless you stick to the contract to completion.

Allianz with their MasterDex X is a refreshing exception since they actually vest their 10% bonus at 1% a year. If you quit the contract after 6 years, for example, you keep a 6% bonus. That is nice because the remaining penalty is around 6%.

 

[bill3173]

The bonus was originally designed to make up for early withdrawal penalties on CDs. "Yes, your annuity looks good, but I'll just wait 6 months to move my money since I have an early withdrawal penalty."

Yes, you are right. No company would ever think of using the bonus to draw business away from a competitor.

No not even when they were near the end of their penalty phase. I've been strictly instructed not to use that as a marketing tool. Nobody does business that way, thanks for reminding me.

 

[insuranceexec]

So who is at fault? I, the agent, complete a suitability form and list that it is a replacement. I also list that there is a surrender penalty. It gets approved. Now what?

 

[bill3173]

So who is at fault? I, the agent, complete a suitability form and list that it is a replacement. I also list that there is a surrender penalty. It gets approved. Now what?

I was making a joke. The masterdexx 10 that was referenced above, was marketed to me as a way of drawing clients out of annuities early, from competitors, and the bonus would cover the penalty, int. acc on bonus, great deal for the buyer etc.

This whole thing about it being unethical is ridiculous. It either fits and their penalty gets covered or not. You have to do the math.

These discussions about annuities without the facts aren't very meaningful, and with the facts are too tedious for discussion here.

These threads haven't gotten much action since the DannysDad days.